Blockchain era and digital assets becoming the new building blocks of the financial world
Highlights
FTX Collapse Sends Shock Waves Through Crypto-World
As 2022, came to an end, the crypto-world came crashing down with the collapse of one of the largest “cryptocurrency exchange and crypto hedge funds -FTX”. Though the crypto world is known to be a world full of twists and drama, with fortunes touching skyscrapers as well as disappearing within seconds, the FTX collapse sent shock waves through every blockchain that exists on the web. FTX, once known as one of the “Blue-Chip companies”, FTX was one of the most stabilized, well-capitalized companies which survived even when the rest of the crypto world was having a roller-coaster ride.
It was all calm before the storm hit up for FTX, when the leading news site specializing in bitcoin and cryptocurrencies, ‘CoinDesk’ came out with a report which highlighted potential leverage and solvency concerns associated with FTX-affiliated quant trading firm Alameda Research.
It revealed that the latter held a position of $5 billion in FTT, which was the native token of FTX. In early November 2022, the exchange and the companies in its orbit began a steep fall from grace. However, problems arose, when Bahamas-based FTX and its FTX US affiliate had overlapping management teams but separate capital structures. It is to be noted that U.S. residents could only trade through FTX US. Taking into account the volatility, of the crypto world, FTX and FTX US crashed due to a lack of liquidity and mismanagement of funds, followed by large volumes of withdrawals by investors.
Binance Sells Entire Position in FTX Tokens as Value Nosedives
The value of FTX nosedived, taking with it other cryptocurrencies like Ethereum and Bitcoin down to two years low by Nov 9, 2021. This led Binance, the world’s biggest crypto exchange to sell its entire position in FTT tokens-roughly 23 million FTT tokens valued at about $529 million. Binance clarified that such a decision was made only because of assessing the risk management post the collapse of another crypto token, Terra in 2022.
Consequently, FTX started facing a liquidity crisis. Even though Bankman-Fried tried to assure the FTX investors that its assets were stable, its customers demanded withdrawals worth 6 billion dollars within days post the “CoinDesk” report. The value of FTT fell by more than 80% in two days.
FTX Exchange Goes Bankrupt
Bankman-Fried even tried to save FTX by reaching a nonbinding agreement, wherein Binance was supposed to buy the non-U.S FTX for an undisclosed sum. Unfortunately, FTX had to meet its end, when Binance backed off the deal when it canceled the deal after due diligence raised concerns regarding the mishandling of customer funds, among other issues.
Eventually, it filed for bankruptcy on November 11, 2022, after a surge of customer withdrawals earlier in the month. Within hours of filing for bankruptcy, FTX alleged it was hacked. The exchange noted “unauthorized transactions” that may have stolen close to $500 million in assets. The hacker continued to drain wallets for several days using what analysts called “on-chain spoofing.”
According to the bankruptcy filings, FTX had assets in the range of $10 billion to $50 billion and liabilities in the range of $10 billion and $50 billion.
Since the collapse, cryptocurrency has seen a 26% spike over the past two months, which also includes a 22% spike in the increase of its price. Investment in Bitcoin has rather seen a hike, which some analysts are remarking as the “market moving past the FTX debacle”. Even Roxanne Islam, the Associate Director of Research at VettaFi said that there has been some renewed interest in crypto since the FTX collapse.
Analysts all over the world, that crypto and other blockchain investments are only growing, being resilient enough to make digital assets the mainstream products. Observing this, Rosie Rios thus remarked, “Digital assets are becoming mainstream products.”
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